HMRC to review airport shops that fail to pass on VAT savings to customers

Passengers travelling outside the EU are exempt from paying a 20% VAT on airport purchasesReuters

The government has announced an "extensive" review into tax practices at airport retail outlets to ensure that VAT savings are being passed on to customers. Chancellor George Osborne has tasked tax office HMRC with examining whether some retailers are keeping as much as 50p of every £1 of potential VAT savings instead of passing them on to shoppers.

Passengers flying to destinations outside the EU from UK airports are exempt from paying VAT charges of up to 20% at airside shops. But some shops have been found to charge customers a VAT-inclusive price without passing on the extra charge to the government, thus inflating their profits.

In August, reports emerged that thousands of people were refusing to show their boarding passes when buying goods at airport shops to protest against the practice.

'Airports should be the ideal place to pick up a bargain'

"For families flying out of the UK for a winter-getaway, airports should be the ideal place to pick up a bargain," Osborne said in a statement. "VAT relief at airports is intended to cut prices for those travellers – not be a windfall gain for shops. But many people could be paying over the odds for their purchases because the government's VAT concession isn't passed on," he said.

Chancellor George Osborne says the VAT practices of some airport retail outlets are 'unacceptable'Reuters

"This is simply unacceptable. I have launched a review to make sure that this VAT relief benefits those it's intended for – consumers – whatever time of the year they are travelling," he added.

The review is expected to be completed by early 2016 and would cover other shopping taxes levied at airports. Customers are legally required to present their boarding passes when buying cigarettes or alcohol from tax-free airport shops, to prove they are flying outside the EU.

However, when purchasing other items – everything from soft drinks to sun cream to cosmetics – people travelling outside the EU are not required to present their boarding pass.